Sticky/hot inflation: May PCE surges to 4.1% (3-year high), core 3.4%; Warsh says risks diminished; measurement overhaul in play; forced rate hike possibility emerges; energy price surge adds pressure; now oil drop eases inflation
Key Questions
What was the May PCE inflation reading and how does it compare historically?
The May PCE surged to 4.1% headline, marking a 3-year high, while core PCE reached 3.4%. This reflects sticky inflation pressures amid energy price surges and other factors.
What methodology changes is the BEA implementing for PCE data?
The Bureau of Economic Analysis is overhauling PCE methodology ahead of the September 30 release, expected to lower core PCE readings by 0.1-0.2 percentage points. This adjustment could strengthen the case for future rate cuts.
How do alternative inflation measures differ from official PCE figures?
Alternative gauges show significantly lower inflation, with the Dallas trimmed mean at 2.4% and Truflation at 1.8%. These contrast with the hotter official May PCE headline and core readings.
What did Fed Chair Warsh say about current inflation risks?
Warsh noted that inflation remains too high but stated that risks have diminished lately. This view aligns with improving outlooks despite persistent price pressures.
How might AI-driven investments influence inflation according to Fed officials?
Officials like Hammack and Kashkari have flagged insatiable AI demand as a potential new driver of inflation. This could keep rate hikes on the table if price pressures persist.
Is there a risk the Fed might need to resume rate hikes?
Recent analysis highlights a growing possibility that the Fed could be forced to resume hiking rates if inflation stays elevated. However, falling oil prices post-Iran ceasefire are currently easing some pressures.
What impact are recent oil price movements having on inflation?
The drop in oil prices following the Iran ceasefire is now reducing inflation and supporting a hold on rates. An energy price surge had previously added upward pressure.
Are there any remaining upside risks to inflation from global events?
Shipping inflation risks from a potential Hormuz closure remain a key upside concern. A contrarian academic view also argues the Fed's current policy path may itself be fueling inflation.
May PCE surged to 4.1% headline (3-year high), core 3.4%. BEA announced methodology changes to PCE, expected to lower core PCE by 0.1-0.2pp by September 30, strengthening case for cuts. Alternative measures like Dallas trimmed mean (2.4%) and Truflation (1.8%) show much lower inflation. Hammack and Kashkari flag AI-driven investment as new inflation driver. New article 'Could the Fed Be Forced to Resume Hiking Rates?' highlights growing hike possibility. Latest article (June 25) reports falling oil prices post-Iran ceasefire are now reducing inflation, supporting the hold case. Shipping inflation risk from Hormuz closure remains a potential upside risk. A contrarian academic analysis argues the Fed's current path is fueling inflation.